Financial Advisor

FX Closing Note: Euro squeeze to close the week

The Euro was almost the strongest currency of the day, with only the Swedish krona among the G-10 currencies managing a stronger performance on the day. While Greek debt spreads rewidened after an initial very sizable tightening earlier in the day, the Euro bears apparently decided to take their chips off the table ahead of the weekend, perhaps due to the uncertainty on whether some kind of temporary loan might see the Greeks through short term funding challenges until they can access the full rescue package some time in the future. A potential major roadblock to that eventuality is the need for an okay from the German parliament while Germany finds itself in the middle of election season and the Greece issue is a very hot potato indeed. See more on this issue in this Reuters story.
Chart: EURUSD
Regardless of the reason for today's comeback in EURUSD, technicals are technicals until proven otherwise. So today's candlestick is a rather bullish one as it reverses the attempt to take out the 1.3267 previous low and keeps the pair supported as long as the new low around 1.3200 holds. There could be more room for a relief rally back to the high of the previous range in the short term if the Greece rescue plan brings down not only E. But the wider fall-out for the EuroZone, politically and financially is still a great unknown and a long term issue that is unlikely to be laid to rest for an awfully long time to come.
 
Risk comes back again again again
US equity markets apparently tried to focus on the positive implications of a weaker US dollar and the very strong durable goods orders and new home sales and managed to rally to a new high close for the cycle today. This of course wiped out the bearish implications we discussed this morning for AUDUSD, which at the time was trading down through key support and the rising trendline, but which closed the day with an impressive bullish hammer reversal. Still, in other crosses, the Aussie showed less strength and the bearish implications for AUDNZD remain intact for the moment. Next week's RBNZ meeting is the next watershed event risk for that currency pair
Looking ahead
Today's close created a bullish hammer formation in risk broadly speaking, so we look to early next week for either confirmation or rejection of this development. Besides the overview of next week's key event risks we outlined in this morning's report, we also have huge US treasury auction on tap, to the tune of $129 billion dollars in 5-year TIPS (Monday) and 3-,5-, and 7-year notes (Tuesday through Thursday). The last auction of longer dated securities saw a key rejection in the strong rise of long interest rates in early April. Will we see continued strong demand for treasuries at this part of the curve or are the bond vigilantes on the loose?
Watch out for weekend developments from the G-20 and on the Greek financial rescue situation and stay careful out there as always.
Have a great weekend!

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